Are you ready for a big rally? Well one is coming. Higher oil prices have been putting a damper on the stock market along with fear of ongoing interest rate hikes. Short interest on the NYSE has reached a record level which adds to my conviction that a major rally is in the making for the second quarter. In fact, I believe the upcoming rally can extend into the beginning of the third quarter.
So, what will be the catalyst for the rally? Now that everyone is talking oil, and just about every investor has been coaxed into buying an oil stock, its time for a sell off. In fact, today we are going to take profits on one of our favorite oil stocks. We are selling Conoco-Phillips, ticker symbol COP. At today痴 price of $110.35, you will bank a cool 11.1% profit in 3 short months. We will continue holding our other two oil stocks, Chevron-Texaco (CVX) and Schlumberger (SLB).
We will continue to trim the portfolio of economically sensitive stocks, and will be adding more defensive stocks to the mix. To take the place of the COP sale, we are buying Lockheed Martin, ticker symbol LMT. Lockheed is a top defense contractor, and with tensions building in the Pacific Rim, LMT should do very well. The stock is currently trading around $60/ share, and you can pay up to $62 for LMT.
After the upcoming rally, dangers are lurking around every corner of this market. Currently, I believe there are bubbles in housing, bonds, and commodities. I have no idea when any of these bubbles may burst, but if history is any indicator, they will eventually pop. Hedging your bets is the prudent thing to do. I recommend that bond investors hedge 10% of their portfolios with the ProFunds Rising Rate Opportunity Fund, ticker symbol RRPIX. The fund moves inversely with the price of bonds. So, if the bond market starts to drop and the value of your bond portfolio should fall, you're investment in RRPIX will rise. During the rally we will also raise our hedges in the Rydex Tempest 500 fund, ticker symbol RYTPX.
I know a lot of families are on spring break this week. If you are vacationing with your family this week, I hope you and have a safe and happy Easter holiday.
